States have legislative say over all alcohol, including industrial, SC rules 8-1

NEW DELHI: Supreme Court on Wednesday further expanded the scope of fiscal federalism by enabling states to exercise virtually complete legislative control over liquor production and trade, a ruling that will empower them to tax industrial alcohol , including denatured spirit and extra neutral alcohol (ENA), which were hitherto part of the sole domain of the Union govt.

This ruling by a 9-judge bench led by CJI D Y Chandrachud , by eight to one majority, is the second financial bonanza for states in 3 months as the same nine-judge bench had, on July 25, entitled states to collect royalty on extracted minerals and levy tax on mineral bearing lands retrospectively from 2005, casting huge financial burden on central PSUs engaged in mining activities.

SC hands legislative control over molasses, grains to states

On Wednesday, the judgment giving wider meaning to Entry 8 (intoxicating liquor) of State List and restricting the operation of Entry 52 (control of industries in public interest) of Central List followed the same ratio as in the July 25 mineral case ruling — CJI Chandrachud authoring the majority 123-page judgment for himself and Justices Hrishikesh Roy, A S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, S C Sharma and A G Masih and Justice B V Nagarathna penning an elaborate 241-page dissent.

Importantly, the majority opinion interpreted the phrase ‘intoxicating liquor’, which is solely within the legislative purview of states, to include extra-neutral alcohol (ENA), which is produced from sugarcane molasses or grains and used in industries producing alcoholic beverages, pharmaceutics, perfumery and hand sanitiser. Centre had cited production of hand sanitiser during the Covid pandemic to urge the SC to maintain parliamentary control over ENA.

The SC went to the extent of giving legislative control over sugarcane molasses and grains, which are raw material for production of alcohol, to states. It said, “Entry 8 cannot be interpreted to exclude raw material used for the production of intoxicating liquor merely because the entry does not expressly provide for them. On an application of the principle that entries ought to be interpreted widely, the raw material for the production and manufacture of intoxicating liquor, as interpreted in this judgment, will be covered by Entry 8.

“Parliament under Entry 52 of List I does not have the legislative competence to enact a law taking control of the industry of intoxicating liquor. State legislatures will have control over the industry of ‘intoxicating liquor’. Parliament could not have taken control of the field covered by Entry 8 since we have interpreted intoxicating liquor to include alcohol other than potable alcohol as well.”